The renewable energy industry has gone through a major lull because higher interest rates are making new investments more difficult. But the long-term trends are still generally positive for the industry. Electricity usage is up, oil and gas usage is rising and prices are increasing, and electrification continues to be a long-term trend.
In the next energy bull market, the stocks that I think are well positioned are SunPower (SPWR 5.85%), NextEra Energy Partners (NEP -0.89%), and automaker Rivian (RIVN 6.10%).
Image source: Getty Images.
Leading in residential solar
The residential solar installations market has been consolidated to two major players, SunPower and Sunrun, and a number of smaller local/regional companies. The biggest difference is that Sunrun finances all of its installations with leases, selling debt to investors, while SunPower offers leases, loans, and cash sales.
You can see below that SunPower has improved revenue, debt, and earnings over the last few years as it's focused on installations and sold off noncore assets. But the stock is at multiyear lows on fears (well founded given reduced guidance) that high interest rates will crush margins.
SPWR Revenue (TTM) data by YCharts
If there is another bull market driven by lower interest rates and strong consumer spending on electric vehicles (EVs) and rooftop solar, SunPower could be one of the biggest beneficiaries. And in the next few years it's likely the bigger players will survive while smaller companies struggle to stay alive.
NextEra Energy Partners' recovery
Shares of NextEra Energy Partners have been decimated in 2023 after the company lowered dividend growth targets and it became apparent that higher interest rates are going to make it harder to acquire projects profitably.
But the company isn't broken. Wind and solar projects come with multidecade contracts to sell electricity to utilities and that cash flow will keep coming in.
The worst-case scenario is NextEra Energy Partners needing to infuse some of its excess capital into projects that can't afford to roll debt over at higher rates. With $2.2 billion of the company's $6.5 billion in debt matures before 2026, so management is taking out new debt and reducing dividend expectations to free up cash.
There are certainly risks, I think the market is overlooking the opportunity here and if rates fall, electricity prices rise, or the market goes into a bull market the stock could be a huge winner. These are all potential tailwinds for NextEra Energy Partners. Investors need to be patient, but the growth potential is easily visible.
Rivian needs a bull run
If we do enter a bull market, investors will be looking for growth. Rivian has that with both its existing R1T and R1S vehicles along with a Georgia plant that's expected to start producing vehicles in 2026.
What's hurt Rivian recently is a down market and rising interest rates, which is slowing high-end auto sales and shaking investor confidence. If we enter a bull market it's likely because rates fall and/or the economy goes on a growth tear. I think that would bode well for EV demand and that's good for Rivian.
Investors betting on Rivian today are already hoping that conditions improve quickly. The company needs to scale operations to get to cash-flow-positive and even if it executes well that could be many years away. So, for the sake of Rivian's future, a bull market would be good news.
Energy of the future
All of these companies are riding long-term energy trends and that's what investors should be looking for. In the next bull run, I think renewable energy and EVs will once again be a hot market and that's why these are stocks that could skyrocket.
